================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   ----------

                                    FORM 10-Q

 

           [X]  Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                     For the period ended November 30, 1998


           [ ]  Transition Report Pursuant to Section 13 or 15(d) 
                     of the Securities Exchange Act of 1934


               For the transition period from ________ to ________


                         Commission File Number: 0-8656


                                    TSR, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            DELAWARE                                             13-2635899
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer 
incorporation or organization)                               Identification No.)


                      400 OSER AVENUE, HAUPPAUGE, NY 11788
                    ----------------------------------------
                    (Address of principal executive offices)


                                  516-231-0333
                         -------------------------------
                         (Registrant's telephone number)


                                      NONE
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 

                             [X] Yes      [ ] No



                               SHARES OUTSTANDING
           -----------------------------------------------------------
           5,998,276 shares of common stock, par value $.01 per share,
                            as of December 31, 1998

================================================================================


                                     Page 1



<PAGE>


                           TSR, INC. AND SUBSIDIARIES

                                      INDEX




                                                                           Page
                                                                          Number
                                                                          ------
PART I.  FINANCIAL INFORMATION:

         Item 1. Financial Statements:

                  Consolidated Condensed Balance Sheets --
                    November 30, 1998 and May 31, 1998....................   3

                  Consolidated Condensed Statements of Earnings --
                    For the three months and six months ended 
                    November 30, 1998 and 1997 ............................  4

                  Consolidated Condensed Statements of Cash Flows --
                    For the six months ended November 30, 1998 and 1997....  5

                  Notes to Consolidated Condensed Financial Statements.....  6

         Item 2. Management's Discussion and Analysis......................  7


PART II. OTHER INFORMATION................................................. 12

SIGNATURES................................................................. 13


                                     Page 2



<PAGE>


<TABLE>

PART I. FINANCIAL INFORMATION

        Item 1. Financial Statements


                                     TSR, INC. AND SUBSIDIARIES

                                CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>

                                                                          November 30,      May 31,
                                                                              1998           1998
                                                                          -----------    -----------
                                                                          (unaudited)
<S>                                                                       <C>            <C>        
ASSETS

Current Assets:

     Cash and cash equivalents (Note 6) ..............................    $ 4,724,772    $ 2,425,122
     Marketable securities (Note 7) ..................................      2,527,694      1,575,945
     Accounts receivable (net of allowance for
         doubtful accounts of $173,000) ..............................     15,327,932     15,037,995
     Other receivables ...............................................        152,885         86,772
     Prepaid expenses ................................................          9,383         67,449
     Prepaid and recoverable income taxes ............................         80,857         90,823
     Deferred income taxes ...........................................         59,000         59,000
                                                                          -----------    -----------
         Total current assets ........................................     22,882,523     19,343,106

Equipment and leasehold improvements, at cost (net of accumulated
     depreciation and amortization of $1,326,000 and $952,000) .......        652,822      1,008,776
Other assets .........................................................        102,428         90,995
Deferred income taxes ................................................         97,000         73,000
                                                                          -----------    -----------
                                                                          $23,734,773    $20,515,877
                                                                          ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
     Accounts and other payables .....................................    $   232,469    $   278,410
     Accrued and other liabilities ...................................      4,011,865      2,950,986
     Income taxes payable ............................................         35,436        173,377
     Advances from customers .........................................        909,518        946,257
                                                                          -----------    -----------
         Total current liabilities ...................................      5,189,288      4,349,030
                                                                          -----------    -----------

Shareholders' Equity:
     Preferred stock, $1 par value, authorized
         1,000,000 shares; none issued ...............................           --             --
     Common stock, $.01 par value, authorized 25,000,000
         shares; issued 5,988,276 shares .............................         59,883         59,883
     Additional paid-in capital ......................................      3,183,246      3,183,246
     Retained earnings ...............................................     15,302,356     12,923,718
                                                                          -----------    -----------
                                                                           18,545,485     16,166,847
                                                                          -----------    -----------
                                                                          $23,734,773    $20,515,877
                                                                          ===========    ===========


                  The accompanying notes are an integral part of these consolidated
                                  condensed financial statements.
</TABLE>

                                               Page 3



<PAGE>


<TABLE>
                                           TSR, INC. AND SUBSIDIARIES

                                  CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                          FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997
                                                  (unaudited)

<CAPTION>
                                                             Three Months Ended            Six Months Ended
                                                                November 30,                 November 30,
                                                         -------------------------    --------------------------
                                                             1998          1997           1998          1997
                                                         -----------   -----------    -----------   ------------
<S>                                                      <C>           <C>            <C>            <C>        
Revenues .............................................   $21,682,375   $17,515,674    $42,147,906    $33,294,519

Cost of sales ........................................    15,887,756    12,671,061     30,948,128     24,618,079
Selling, general and administrative expenses .........     3,526,087     3,088,822      6,885,351      5,903,037
Research and development .............................        80,310       211,930        228,481        377,184
                                                         -----------   -----------    -----------   ------------
                                                          19,494,153    15,971,813     38,061,960     30,898,300
                                                         -----------   -----------    -----------   ------------

Income from operations ...............................     2,188,222     1,543,861      4,085,946      2,396,219

Other income:
     Interest and dividend income ....................        78,687        41,075        146,573         72,270
     Gain (loss) from marketable
        securities, net ..............................        23,901         3,410         (3,881)         7,360
     Gain from sales of assets .......................          --            --             --            8,600
                                                         -----------   -----------    -----------   ------------

Income before income taxes ...........................     2,290,810     1,588,346      4,228,638      2,484,449
Provision for income taxes ...........................     1,000,000       707,000      1,850,000      1,134,000
                                                         -----------   -----------    -----------   ------------

     Net income ......................................   $ 1,290,810   $   881,346    $ 2,378,638    $ 1,350,449
                                                         ===========   ===========    ===========   ============

Basic net income per common share ....................   $      0.22   $      0.15    $      0.40    $      0.23
                                                         ===========   ===========    ===========   ============

Weighted average number of
   common shares outstanding .........................     5,988,276     5,966,704      5,988,276      5,942,206
                                                         ===========   ===========    ===========   ============

Diluted net income per common share ..................   $      0.22   $      0.15    $      0.40    $      0.23
                                                         ===========   ===========    ===========   ============

Weighted average number of
   diluted common shares outstanding .................     5,988,276     5,966,704      5,988,276      5,942,206
                                                         ===========   ===========    ===========   ============


                        The accompanying notes are an integral part of these consolidated
                                        condensed financial statements.
</TABLE>

                                                     Page 4



<PAGE>


<TABLE>
                                      TSR, INC. AND SUBSIDIARIES

                            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                          FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997
                                                  (unaudited)

<CAPTION>

                                                                                Six Months Ended
                                                                                   November 30,
                                                                           --------------------------
                                                                               1998           1997
                                                                           -----------    -----------
<S>                                                                        <C>            <C>        
Cash flows from operating activities:
     Net income ........................................................   $ 2,378,638    $ 1,350,449
                                                                           -----------    -----------
     Adjustments to reconcile net income
       to net cash provided by (used in) operating activities:
         Depreciation and amortization .................................       431,500        188,097
         Loss (gain) from marketable securities, net ...................         3,881         (7,360)
         Deferred income taxes .........................................       (24,000)       (20,000)
         Gain on sales of assets .......................................          --           (8,600)
Changes in assets and liabilities:
             Accounts receivable .......................................      (289,937)    (2,419,092)
             Other receivables .........................................       (66,113)       (50,937)
             Prepaid expenses ..........................................        58,066          3,860
             Prepaid and recoverable income taxes ......................         9,966        (39,805)
             Other assets ..............................................       (28,100)        20,952
             Accounts payable and accrued expenses .....................     1,014,938        171,566
             Income taxes payable ......................................      (137,941)      (124,701)
             Advances from customers ...................................       (36,739)        (8,528)
                                                                           -----------    -----------
         Total adjustments .............................................       935,521     (2,294,548)
                                                                           -----------    -----------
     Net cash provided by (used in) operating activities ...............     3,314,159       (944,099)
                                                                           -----------    -----------

Cash flows from investing activities:
         Proceeds from maturities and sales of marketable securities ...       974,054           --
         Purchase of marketable securities .............................    (1,929,684)      (105,002)
         Purchase of fixed assets ......................................       (58,879)      (738,601)
         Proceeds from sales of assets .................................          --            8,600
                                                                           -----------    -----------
     Net cash used in investing activities .............................    (1,014,509)      (835,003)
                                                                           -----------    -----------

Net increase (decrease) in cash and cash equivalents ...................     2,299,650     (1,779,102)
Cash and cash equivalents at beginning of period .......................     2,425,122      2,931,180
                                                                           -----------    -----------

Cash and cash equivalents at end of period .............................   $ 4,724,772    $ 1,152,078
                                                                           ===========    ===========

Supplemental Disclosures:
     Income tax payments ...............................................   $ 2,002,000    $ 1,319,000
                                                                           ===========    ===========

     Interest paid .....................................................   $      --      $      --
                                                                           ===========    ===========


                  The accompanying notes are an integral part of these consolidated
                                   condensed financial statements.
</TABLE>


                                                Page 5



<PAGE>



                           TSR, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                NOVEMBER 30, 1998

1.   The accompanying unaudited consolidated condensed financial statements have
     been prepared in accordance with generally accepted accounting principles
     for interim financial information and with the instructions of Form 10-Q
     of Regulation S-X. Accordingly, they do not include all the information and
     notes required by generally accepted accounting principles for complete
     financial statements. For further information refer to the Company's
     consolidated financial statements and notes thereto included in the
     Company's Annual Report on Form 10-K for the year ended May 31, 1998.

2.   In the opinion of the Company, the accompanying unaudited consolidated
     condensed financial statements contain all adjustments (consisting of only
     normal recurring accruals) necessary to present fairly the consolidated
     financial position, the consolidated results of operations, and
     consolidated cash flows for the periods presented.

3.   The Company is primarily engaged in the business of providing computer
     programming consulting services. The Company provides technical computer
     personnel to companies to supplement their in-house information technology
     capabilities. In addition, during fiscal 1997, the Company developed
     Catch/21, a Year 2000 compliance software solution which enables the
     Company to correct, on a substantially automated basis, problems which may
     occur in computer software as a result of the century change in the year
     2000. Toward the end of fiscal 1997 the Company commenced providing
     services to customers to make applications Year 2000 compliant.

4.   The consolidated condensed financial statements include the accounts of
     TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
     balances and transactions have been eliminated in consolidation.

5.   The Company recognizes computer programming consulting services revenues as
     services are provided. Revenues from the maintenance and support of the
     Company's proprietary software are recognized monthly as services are
     rendered. Provided that acceptance is probable, revenue from Catch/21 code
     conversion is recognized when the converted code is delivered.

6.   The Company considers short-term highly liquid investments with maturities
     of three months or less at the time of purchase to be cash equivalents.
     Cash and cash equivalents were comprised of the following as of November
     30, 1998:

              Cash in banks .............................     $1,091,914
              Money Market Funds.........................      2,643,668
              United States Treasury Bills...............        989,190
                                                              ----------
                                                              $4,724,772
                                                              ==========

7.    Marketable securities consists of United States Treasury Bills and equity
      securities. The treasury bills with maturities at acquisition in excess of
      90 days, are classified as held to maturity investments. The Company's
      equity securities are classified as trading securities. The amortized
      cost, gross unrealized holding gains, gross unrealized holding losses and
      fair value for marketable securities by major security type at November
      30, 1998 are as follows:

                                                  Gross      Gross
                                                Unrealized Unrealized
                                     Amortized    Holding   Holding
                                        Cost       Gains    Losses    Fair Value
                                     ---------- ---------- ---------- ----------
      United States Treasury Bills.. $2,403,775      --        --     $2,403,775
      Equity Securities.............    133,289    12,632   (22,002)     123,919
                                     ----------   -------  --------   ----------
                                     $2,537,064   $12,632  $(22,002)  $2,527,694
                                     ==========   =======  ========   ==========

8.    On January 30, 1998, the Company sold 160,000 shares of common stock at
      $16 per share in a private placement. The net proceeds to the Company
      after expenses were $2,306,400.


                                     Page 6



<PAGE>


PART I. FINANCIAL INFORMATION

           Item 2.

                           TSR, INC. AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and the notes to the consolidated
condensed financial statements.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of earnings.
There can be no assurance that trends in sales growth or operating results will
continue in the future:

Three months ended November 30, 1998 compared with three months ended November
30, 1997

<TABLE>
<CAPTION>
                                                          3 Months Ended November 30,
                                                   ----------------------------------------
                                                          1998                 1997
                                                   ------------------    ------------------
                                                               % of                  % of
                                                    Amount   Revenues     Amount   Revenues
                                                   -------   --------    -------   --------
                                                         (Dollar amounts in Thousands) 

<S>                                                <C>         <C>       <C>         <C>  
Revenues ........................................  $21,682     100.0     $17,516     100.0
Cost of Sales ...................................   15,887      73.3      12,671      72.3
                                                   -------     -----     -------     -----
Gross Profit ....................................    5,795      26.7       4,845      27.7

Selling, General, and Administrative Expenses ...    3,526      16.2       3,089      17.7
Research and Development ........................       80       0.4         212       1.2
                                                   -------     -----     -------     -----
Income from Operations ..........................    2,189      10.1       1,544       8.8

Other Income ....................................      102       0.5          44       0.2
                                                   -------     -----     -------     -----
Income Before Income Taxes ......................    2,291      10.6       1,588       9.0
Provision for Income Taxes ......................    1,000       4.6         707       4.0
                                                   -------     -----     -------     -----
Net Income ......................................  $ 1,291       6.0     $   881       5.0
                                                   =======     =====     =======     =====
</TABLE>

REVENUES

Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues for the quarter ended November 30,
1998 included revenues from its Year 2000 business which was commenced in fiscal
1997. Revenues for the quarter ended November 30, 1998 increased $4,166,000 or
23.8% over the comparable period in fiscal 1998.

Computer programming consulting services revenues increased $3,539,000 from
$15,921,000 in the quarter ended November 30, 1997 to $19,460,000 in the quarter
ended November 30, 1998. This increase resulted from an overall increase in the
number of programmers on billing with clients from an average of approximately
467 in the quarter ended November 30, 1997 to approximately 514 in the quarter
ended November 30, 1998.

Revenues from the Company's Year 2000 business, were $2,222,000 for the quarter
ended November 30, 1998 as compared to $1,580,000 for the quarter ended November
30, 1998. During the current quarter the Company used its proprietary Catch/21
Software Solution on conversion projects to remediate approximately 7,500,000
lines of code for client software applications for a total of sixteen customers.
The Company's Year 2000 revenues during the second quarter of fiscal 1999 were
slightly less than the first quarter revenues and the Company expects these
revenues may decline more rapidly during the remainder of fiscal 1999. The
Company has received less code from customers than it had expected based on
customers' original estimates. In addition, the Company is experiencing more
intense competition which has impacted obtaining new customers. As a result, the
Company has reduced its marketing efforts and sales force in the Year 2000 area.

The agreements under which the Year 2000 revenues were recognized provide that
all payments under the agreements are subject to satisfactory conversion of the
applications. Revenues include amounts billed or paid prior to the final
acceptance by the customer only for conversion projects where management
believes that acceptance is probable.


                                     Page 7



<PAGE>


COST OF SALES

Cost of sales as a percentage of revenues increased from 72.3% in the quarter
ended November 30, 1997 to 73.3% in the quarter ended November 30, 1998. This
increase is attributable to increases in cost of sales as a percentage of
revenues in both the computer programming consulting services business and the
Year 2000 business.

In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 76.3% in the quarter ended November 30, 1997
to 77.0% in the quarter ended November 30, 1998. This increase is attributable
to increases in amounts being paid to qualified programming professionals
outpacing the Company's ability to pass these increases on to customers due to
competitive market pressures in the industry.

The Year 2000 business incurred cost of sales of $1,908,000 in the quarter ended
November 30, 1998 versus $522,000 in the prior year quarter. These costs
consisted primarily of salaries of software analysts and quality assurance
personnel. The Company expects cost of sales from the Year 2000 business to
decrease in the coming quarters due to a significant decrease in the number of
analysts working in this area.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses increased $437,000 or 14.1%
from $3,089,000 in the quarter ended November 30, 1997 to $3,526,000 in the
quarter ended November 30, 1998. Selling, general and administrative expenses
related to computer programming consulting services increased $305,000 over the
prior year period to $2,801,000. The increase was primarily attributable to
additional commission based compensation based on higher gross profits. In
addition, this increase resulted from expenses relating to the hiring of
additional account executives and technical recruiting professionals to broaden
the Company's client base and recruit additional technical consultants in
connection with the continuation of the Company's planned expansion.

In the quarter ended November 30, 1998, approximately $725,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, management, and facilities
expenses. Such expenses are expected to decline due to lower demand for Year
2000 remediation services. Comparable Year 2000 selling, general and
administrative expenses in the quarter ended November 30, 1997 were $593,000.

RESEARCH AND DEVELOPMENT

Research and development costs of $80,000 in the quarter ended November 30, 1998
represent amounts expended by the Company on the Company's Year 2000 compliance
solution product offerings primarily related to XRAY/2000 which stands for
Examination, Repair, and Audit for Year 2000 Compliance, and various testing
utilities. Research and development expenses in the quarter ended November 30,
1997 were $212,000. The Company expects to continue to reduce research and
development expenditures.

INCOME FROM OPERATIONS

In the quarter ended November 30, 1998, the computer programming consulting
service business contributed $1,680,000 or 76.7% of the income from operations,
while the Year 2000 business contributed the remaining $509,000 or 23.3%. In the
prior year quarter, the computer programming consulting service business
contributed $1,276,000 or 82.6% of income from operations, the Year 2000
business contributed $253,000 or 16.4%, and there was $15,000 or 1.0% from other
sources.

OTHER INCOME

Other income resulted primarily from interest and dividend income which
increased by $58,000 to $102,000 due to higher average available investable
funds in the quarter ended November 30, 1998. There was also an unrealized gain
of $24,000 on the Company's equity securities.

INCOME TAXES

The effective income tax rate decreased to 43.7% in the quarter ended November
30, 1998 from 44.5% in the quarter ended November 30, 1997 because of a lower
percentage of non-deductible expenses.


                                     Page 8



<PAGE>



<TABLE>
<CAPTION>


Six months ended November 30, 1998 compared with six months ended November 30,
1997.

            (Dollar amounts in Thousands)                                                6 Months Ended
                                                                                          November 30,

                                                                                     1998               1997
                                                                                     ----               ----
                                                                                           % of               %  of
                                                                                Amount   Revenues  Amount    Revenues
                                                                                ------   --------  ------    --------
<S>                                                                            <C>       <C>       <C>       <C>

Revenues ...................................................................   $42,148     100.0   $33,294     100.0
Cost of Sales ..............................................................    30,948      73.4    24,618      74.0
                                                                               -------   -------   -------   -------
Gross Profit ...............................................................    11,200      26.6     8,676      26.0

Selling, General, and Administrative Expenses ..............................     6,885      16.3     5,903     17.7
Research and Development ...................................................       228       0.6       377      1.1
                                                                               -------   -------   -------   -------
Income from Operations .....................................................     4,087       9.7     2,396      7.2

Other Income ...............................................................       142       0.3        88       0.3
                                                                               -------   -------   -------   -------
Income Before Income Taxes .................................................     4,229      10.0     2,484       7.5

Provision for Income Taxes .................................................     1,850       4.4     1,134       3.4
                                                                               -------   -------   -------   -------
Net Income .................................................................   $ 2,379       5.6   $ 1,350       4.1
                                                                               =======   =======   =======   =======

</TABLE>


Revenues

Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues for the six months ended November
30, 1998 included revenues from its Year 2000 business which was commenced in
fiscal 1997. Revenues for the six months ended November 30, 1998 increased
$8,854,000 or 26.6% over the comparable period in fiscal 1998.

Computer programming consulting services revenues increased $6,499,000 from
$31,096,000 in the six months ended November 30, 1997 to $37,595,000 in the six
months ended November 30, 1998. This increase resulted from an overall increase
in the number of programmers on billing with clients from an average of
approximately 458 in the six months ended November 30, 1997 to approximately 496
in the six months ended November 30, 1998.

Revenues from the Company's Year 2000 business, were $4,553,000 for the six
months ended November 30, 1998 as compared to $2,165,000 in the six months ended
November 30, 1998. During the current six month period the Company used its
proprietary Catch/21 Software Solution on conversion projects to remediate
approximately 16,500,000 lines of code for client software applications for a
total of sixteen customers. While the Company's revenues for Year 2000 services
increased over the comparable six month period in fiscal 1998, the Company
expects its Year 2000 revenues to decline during the remainder of fiscal 1999.


                                     Page 9


<PAGE>


Cost of Sales

Cost of sales as a percentage of revenues decreased from 74.0% in the six months
ended November 30, 1997 to 73.4% in the six months ended November 30, 1998. This
decrease is primarily attributable to the increase in Year 2000 revenues for
which cost of sales as a percentage of revenues is less than the computer
programming consulting services business.

In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 76.2% in the six months ended November 30,
1997 to 77.1% in the six months ended November 30, 1998. This increase is
attributable to increases in amounts being paid to qualified programming
professionals outpacing the Company's ability to pass these increases on to
customers due to competitive market pressures in the industry.

The Year 2000 business incurred cost of sales of $1,988,000 in the six months
ended November 30, 1998 versus $908,000 in the prior year period. These costs
consisted primarily of salaries of software analysts and quality assurance
personnel. The Company expects cost of sales from the Year 2000 business to
decrease in the coming quarters due to a significant decrease in the number of
analysts working in this area.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses increased $982,000 or 16.6%
from $5,903,000 in the six months ended November 30, 1997 to $6,885,000 in the
six months ended November 30, 1998. Selling, general and administrative expenses
related to computer programming consulting services increased $766,000 over the
prior year period to $5,522,000. The increase was primarily attributable to
additional sales commissions based on higher gross profits. In addition, this
increase resulted from expenses relating to the hiring of additional account
executives and technical recruiting professionals to broaden the Company's
client base and recruit additional technical consultants in connection with the
continuation of the Company's planned expansion.

In the six months ended November 30, 1998, approximately $1,363,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, management, and facilities
expenses. Comparable Year 2000 selling, general and administrative expenses in
the six months ended November 30, 1997 were $1,147,000.

Research and Development

Research and development costs of $228,000 in the six months ended November 30,
1998 represent amounts expended by the Company on the Company's Year 2000
compliance solution product offerings primarily related to XRAY/2000 which
stands for Examination, Repair, and Audit for Year 2000 Compliance, and various
testing utilities. Research and development expenses in the six months ended
November 30, 1997 were $377,000.

Income from Operations

In the six months ended November 30, 1998, the computer programming consulting
service business contributed $3,113,000 or 76.2% of the income from operations,
while the Year 2000 business contributed the remaining $974,000 or 23.8%. In the
prior year period, the computer programming consulting service business
contributed $2,629,000 of income from operations, the Year 2000 business
incurred a loss of $267,000, and there was $34,000 from other sources.

Other Income

Other income resulted primarily from interest and dividend income which
increased by $54,000 to $142,000 due to higher average available investable
funds in the six months ended November 30, 1998. This interest and dividend
increase was offset, to some extent, by an unrealized loss of $4,000 on the
Company's equity securities.

Income Taxes

The effective income tax rate decreased to 43.7% in the six months ended
November 30, 1998 from 45.6% in the period ended November 30, 1997 because the
losses incurred in the prior year period by the Year 2000 business, operated out
of the Company's Hauppauge, New York location, were not available to offset
state and local income taxes other than for New York State.


                                     Page 10


<PAGE>


Liquidity, Capital Resources and Changes in Financial Condition

The Company expects that cash flow generated from operations together with its
cash and marketable securities and available credit facilities will be
sufficient to provide the Company with adequate resources to meet its cash
requirements.

At November 30, 1998, the Company had working capital of $17,693,000 and cash
and cash equivalents of $4,725,000 as compared to working capital of $14,994,000
and cash and cash equivalents of $2,425,000 at May 31, 1998. Working capital and
cash and cash equivalents increased primarily due to the Company's net income in
the six months ended November 30, 1998.

The Company had positive net cash flow of $3,314,000 from operations during the
six months ended November 30, 1998 as compared to negative net cash flow from
operations of $944,000 in the six months ended November 30, 1997. The Company
had net income of $2,379,000, in the six month ended November 30, 1998 as
compared to $1,350,000 in the six months ended November 30, 1997. Cash flow also
benefited from a small increase in accounts receivable despite the significant
increase in revenues because the rate of increase in collections on accounts
receivable exceeded the rate of growth in revenues during the six months ended
November 30, 1998. The Company also had additional cash flow as a result of the
increase in the accounts payable and accrued expenses of $1,015,000. The
increase in accounts payable and accrued expense resulted primarily from the
increase in cost of sales.

Cash flow used in investing activities resulted primarily from the purchase of
US Treasury Bills with a maturity in excess of three months and the purchase of
fixed assets in the current period of $59,000. The fixed asset additions were
$739,000 in the prior year period. The significant decrease occurred due to
equipment purchased in the prior year period to emulate client computer
environments to enable sufficient testing and quality assurance of the Catch/21
Software Solution.

The Company's capital resource commitments at November 30, 1998 consisted of
lease obligations on its branch and corporate facilities. The Company intends to
finance these lease commitments from cash flow provided by operations, available
cash and short-term marketable securities.

The Company's cash and marketable securities were sufficient to enable it to
meet its cash requirements during the six months ended November 30, 1998. The
Company believes that it would require financing for its accounts receivable if
its accounts receivable grow significantly as a result of a significant increase
in the rate of revenue growth. The Company has available a revolving line of
credit of $5,000,000 with a major money center bank which the Company believes
provides sufficient available financing if this need arose. As of November 30,
1998 no amounts were outstanding under this line of credit.

Year 2000 Information

Readiness for Year 2000

The Company has only limited internal systems which it believes could be
affected by Year 2000 issues. The Company's principal information technology
(IT) systems are its resume search (which contains its databases of IT
professionals), payroll, billing and general ledger systems. The Company
believes that its search, payroll and billing software systems are written in a
language which should be Year 2000 compliant. The Company's general ledger
system will require an upgrade to be Year 2000 compliant and the Company is
currently in the process of testing the upgrade. The Company does not expect the
cost of the upgrade to be material. The Company's management is engaged in an
assessment of the readiness of its systems for handling the Year 2000 and
intends to conduct more extensive tests of its software systems. The Company is
not currently aware of any non-IT systems which are material to the Company and
contain embedded chip systems which have Year 2000 issues. Although the
assessment of the Company's IT and non-IT systems is in the early stages,
management does not believe that it will have material Year 2000 problems
relating to its IT and non-IT systems. The Company's management currently
believes that it will be successful in identifying and resolving any potential
deficiencies in its systems with respect to Year 2000 issues, that all material
systems will be compliant by the Year 2000 and that the cost to address the Year
2000 issues will not be material.


                                     Page 11

<PAGE>


The Company does not materially rely on individual third party vendors and
suppliers and accordingly does not believe that the Year 2000 readiness of third
party vendors or suppliers will have a material impact on its business.
Nonetheless, the Company's business is dependent on third parties, such as
public utilities, electric systems, telecommunication systems, mail and
overnight delivery services. The Company's business could be materially
adversely affected by disruption in services provided by such entities, or by
conditions resulting from Year 2000 issues generally affecting companies with
which it does business.

The Company's management believes the impact of the Year 2000 will not cause any
material disruptions in the Company's operations. However, the impact of such
potential disruptions is difficult to assess and accordingly there is a risk
that there will be disruptions which could have a material adverse effect on the
Company.

As discussed above, the Company is engage in an ongoing Year 2000 assessment.
Following the completion of the assessment, the Company plans to conduct a
full-scale Year 2000 simulation of its IT systems. The results of this
simulation and the Company's assessment will be taken into account in
determining the nature and extent of any contingency plans.

Forward-Looking Statements

Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the development of the Company's Catch/21 solution, future prospects and the
Company's future cash flow requirements are forward looking statements, as
defined in the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projections in the forward looking statements
which statements involve risks and uncertainties, including but not limited to
the following: risks relating to the competitive nature of the markets for
computer programming consulting services and the Year 2000 compliance solution
market, concentration of the Company's business with certain customers and
uncertainty as to the Company's ability to bring in new customers and the risk
that the Catch/21 software solution will not achieve increased commercial
acceptance.




Part II.   Other Information

         Item 6.  Exhibits and Reports on Form 8K
                  (a).  Exhibit 27: Financial Data Schedule
                  (b).  Reports on Form 8K: None


                                     Page 12


<PAGE>




TSR, INC. AND SUBSIDIARIES



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                                      TSR, INC.
                                  ----------------------------------------------
                                                     (Registrant)




Date: January 8, 1999             /s/   J.F. Hughes
                                  ----------------------------------------------
                                  J.F. Hughes, Chairman, President and Treasurer




Date: January 8, 1999             /s/ John G. Sharkey
                                  ----------------------------------------------
                                  John G. Sharkey, Vice President, Finance


                                     Page 13